Companies That Fight Click Fraud Enjoy the Downturn

Many things are down during the recession. But there’s a boom in click fraud, the tricks used to make online ads seem more effective than they are. And companies that police the practice are seeing fresh business as Internet concerns seek to hold onto advertisers during the downturn.

The latest evidence comes from Anchor Intelligence, a Silicon Valley start-up. Ken Miller, its chief executive, says the company has received five times as many inquiries from potential customers in the past six weeks than during any previous period in its several-year-history. And on Thursday, Anchor announced a deal with Ask.com, designed to help limit the effects of click fraud on that IAC-owned search engine.

“Marketers are getting super uptight” about click fraud, says Miller, who was formerly vice president of risk management for eBay’s PayPal. “Potential clients are saying now is not the time to lose money.”

Click Forensics, another major provider of click-fraud detection services, says revenues quadrupled from January 2008 to January 2009. A company spokesman attributed the lift to advertiser jitters over the bad economy and growth in online advertising as a whole. The overall industry average click fraud rate was 17.1% in the fourth quarter of 2008, up from 16.0% in the third quarter of 2008, according to Click Forensics.

The problem, which is not new, is rooted in the fact that many companies get paid based on how many times users click on online ads. Fraudsters develop computer programs that simulate user clicks to drive up traffic, and artificially inflating revenue.

Google and Yahoo have been forced to settled lawsuits from advertisers who claim they haven’t done enough to police the practice, which adds to their revenues. As part of those settlements, and to boost confidence in their business, the Internet giants have been cracking down with their own technology and say they don’t charge advertisers for fraudulent clicks.

Companies that try to prevent the practice examine various kinds of evidence about clicks, such as patterns about what Internet addresses they are coming from and their frequency. Anchor, for example, looks at a range of Internet data to assign a score to clicks to give advertisers a better sense of legitimate traffic volumes.

The startup sprung from an idea that Ron Conway, a prolific Silicon Valley angel investor, and entrepreneur Jim Pitkow, had back in 2005. At the time, the pair was looking to start a search incubator but “Yahoo and Google were sucking up all the great engineers,” recalls Conway. So they started an anti-click fraud company instead, which at the time was called Fraudwall.

Anchor got its current name in late 2007 and has signed big deals with Internet ad companies LookSmart and AdBrite, among others. The company expects to soon examine one billion clicks a month, up from hundreds of millions currently.

Conway argues that Internet companies will ultimately deal with click-fraud the same way they dealt with email spam — outsource it. “Advertisers will feel better if it is a third-party,” he said, adding that fraud-detection technology is incredibly complex, particularly as click fraud rings grow more sophisticated.

The Ask partnership will work like this: When an Ask-served ad is clicked on, Anchor will deliver the company a real-time score on the quality of that traffic based on historical data from Ask and other info culled from around the Web. Ask can then sift out which traffic it shouldn’t bill advertisers for, Anchor says.